Project Summary Hospitals are rapidly acquiring practices and employing physicians in a wave of hospital- physician integration. Over 50 percent now work for hospitals, up from 20 percent in 2002. Some observers view this rise of ?vertical integration? as a positive development because of its potential to improve coordination and reduce waste. Others argue that providers integrate for anti-competitive reasons, pointing to price and spending spikes of more than 10 percent, raising concerns about widening income gaps between primary care physicians and specialists, and speculating that it may exacerbate disparities between rural and urban communities. Despite these concerns, the causes and consequences of vertical integration remain poorly understood. The objective of this study is to bring together econometrics, quasi-experimental design, and linkages of a wide array of critical data sources to evaluate the effects of integration on income gaps between primary care physician and specialists across urban and rural communities. This study will use rare income data from the U.S. Census, paired with Medicare claims and other health research databases, to test whether physician quality or financial metrics drive integration with hospitals, and whether these factors differ by rural and urban setting. It will further test whether integration drives apart primary care and specialist incomes, and whether the different regulatory environment and labor market structure found in rural communities modifies this wage gap. We will use a large retrospective dataset, longitudinal econometric techniques, and instrumental variables analysis to examine these issues. We expect to find that financial incentives are a stronger explanation for integration than physician quality, that rural communities integrate less than urban ones, and that integration drives up the incomes of specialists relative to primary care. Results from this project will enhance the evidence base needed by Medicare, commercial payers, and regulators to design a policy response to the consequences of ? and opportunities presented by ? vertical integration.